Risk attitudes and the ‘vicious circle of poverty’

The article reconsiders the view that the poor are trapped into poverty as a result of their risk aversion, precluding the level of investment needed to lift them out of poverty. The starting point is the experimental methods of Binswanger who found no significant association between risk aversion and low income. Using experimental data from Uganda, Ethiopia and India the article confirms these early findings, and provides estimates of the correlation between the variables involved in the 'vicious circle of poverty'. The paper concludes that there is generally little relationship between risk aversion and an income measure of poverty, but a strong relationship between the latter and asset levels and returns.